Could Margaret Thatcher's Reforms Work in 2013?; Debating Health Care Costs, Obama's New Budget; Is Age the New Political Division in the U.S.?

Aired April 14, 2013 - 10:00 ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

FAREED ZAKARIA, CNN HOST: This is GPS, the Global Public Square. Welcome to all of you in the United States and around the world. I'm Fareed Zakaria.

This week, President Obama released his 2014 budget proposal and we'll start with two crucial debates about it.

First up, is Obama's budget a step forward? Will we get our house in order? Ronald Reagan's budget director, David Stockman, versus President Obama's former top economic adviser, Austan Goolsbee.

Then, America's debt and deficits going forward will large be caused by one factor, health care, how to bring these costs down. The great debate we should all be having. Steven Brill and David Goldhill present two very different views.

Also, Anthony Bourdain on globalization and food. What does he learn from eating stuff all over the world? I'll ask him.

And a lesson in ethics from an unlikely source, an emerging markets business titan. Ratan Tata ran India's largest conglomerate and he explains how businesses can and should live by a moral code.

But, first here's my take. I grew up admiring Margaret Thatcher. It was obvious to many of us in India in the 1970s that socialist economics didn't work and that Thatcher's radical reforms were the right course.

Her plans to cut taxes, privatize industry and deregulate have been vindicated by history, but that doesn't tell us very much about what to do today.

Consider the world in 1979, when Thatcher came to power. The average Briton's life was a series of interactions with government: Telephone, gas, electricity and water service, ports, trains and airlines were all owned and run by the state, as were steel companies and even Jaguar and Rolls-Royce.

In almost all cases, this led to inefficiency. It took months to get a home telephone line installed. Marginal tax rates were ferociously high, reaching up to 83 percent.

Britain was not unusual. In most European countries, the state had as large a role atop the "commanding heights" of the economy. And while the United States was always far more free-market-oriented, even America tax rates in the 1970s were in the range of 70 percent, and government tightly regulated telecommunications, transportation and finance.

Today's world is completely different. Thirty years of privatization, tax cuts and deregulation have swept through those same industries; telecommunications, transportation, and finance, and many more.

In most sectors, it's hard to find a major state-owned company in the Western world. Thatcher privatized 50 companies, and governments in Europe, Asia, Latin America and, now, Africa followed the same course.

The top marginal tax rate in India in 1974 was 97.5 percent, really. Today, the top rate is 40 percent. In the U.S. in 1977, taxes on capital gains and dividends were 39.9 percent; in 2012, the rate was 15 percent.

In 1977, corporate taxes in America were close to 50 percent,. They're now they are 35 percent, and most companies pay a much lower rate.

These changes have taken place under conservative, liberal and even socialist governments. Peter Mandelson, the architect of the Labor Party's rise in the 1990s, declared, "We are all Thatcherites now."

Thatcher's ideas resonated because they were an effective antidote to the problems of the times. In the 1970s, the Western world was staggering under the weight of oil shocks, rising wages, rocketing inflation, slowing productivity and growth, labor unrest, high taxes and sclerotic state-owned companies.

These are not the problems we face now. Today, American and European workers struggle to keep up their wages as technology and globalization push them down. Wage deflation not inflation is the pressing problem.

Western economies face global competition, with other countries building impressive infrastructure and expanding education and worker training.

They face a two-track economy where capital does well, but labor does not, where college graduates thrive, but those without strong skills fall behind, where inequality is rising not just in outcomes, but in opportunities.

Against this backdrop, would a further round of deregulation do much? Would cutting taxes from say 40 percent unleash growth, especially when it would mean even larger deficits?

The Simpson-Bowles plan, often seen as a practical solution to our current fiscal problems, actually raises tax revenues by $2.6 trillion and it hikes the rates on both capital gains and dividends. Margaret Thatcher was, in her own words, a "conviction politician."

(BEGIN VIDEO CLIP)

MARGARET THATCHER, FORMER BRITISH PRIME MINISTER: When you see the bill, say no, no."

(END VIDEO CLIP)

But she was successful because her convictions addressed the central problems of her time. The ideas that will work now would be those that solve our problems, not those of the 1970s.

For more on this, go to cnn.com/fareed for a link to my Washington Post column. Let's get started.

The budget proposal that President Obama unveiled this week has certain inclusions that Democrats generally like and Republicans don't, tax increases, and other items that Republicans tend to appreciate and Democrats, for the most part, don't, entitlement cuts.

What to make of all of this? Joining me now, two former top economists for presidents; David Stockman was President Reagan's budget director and the author of the recently released book, "The Great Deformation."

And Austan Goolsbee was President Obama's chair of the Council of Economic Advisors, now, a professor at the Booth Business School at the University of Chicago.

Gentlemen, let me ask you, David Stockman, what is the one line that you draw out of Obama's budget? What's the one line reaction?

DAVID STOCKMAN, AUTHOR, FORMER REAGAN BUDGET DIRECTOR: I think it's a disgraceful cop-out. It basically is based on illusions about the four things that matter; ten years of an economy, rosy scenario, budget improving, no way.

If he used realistic forecasts, we're heading for $15 to $20 trillion of deficits, not the $6 trillion he starts out with. So, therefore, what he's done makes very little difference.

Secondly, we need to have revenue increases on everybody, the middle class too. And, again, you have the illusion and the statement to the middle class, "You're not going to have to do it. We'll get it from the oil companies or the top 2 percent."

I'm all for the Buffett Rule and taxing the oil companies, that's fine, but we need a lot more revenue than that if you look at it honestly.

Third, Social Security gets a pinprick when Social Security is a massive problem. There's nothing in the trust fund, that's confetti.

And we need to have a very tough means test that saves trillions of dollars over the next several years. If we don't do this, we're going to be drifting right into the wall.

ZAKARIA: Other than that, Mrs. Lincoln, how did you like the play?

(LAUGHTER)

Austan Goolsbee, isn't it -- even by President Obama's accounting, the total debt goes to something like 80 percent, 78 percent of GDP in two years and that's up from 40 percent when you first took over at the Council of Economic Advisors.

Is it fair to say that this doesn't deal with this huge problem of public debt?

AUSTAN GOOLSBEE, FORMER CHAIR, OBAMA'S COUNCIL OF ECONOMIC ADVISORS: No, I don't think that's fair. Now, you got to note, David's coming from a different place than what the debate between Republicans and Democrats are.

So when he's saying it's a pinprick on Social Security, you saw several of the Republicans in Congress come out in Congress say it was an unconscionable attack on seniors.

So we're in this partisan environment in Washington that has prevented anything like a compromise from even getting put on the table.

ZAKARIA: But, Austan, is it fair to say though that when you consider the magnitude of the problem, it doesn't do enough on the deficit or do you think that's a misplaced -- talk about the economics of it not the politics for a second.

GOOLSBEE: Yes, OK. Well, I think on the economics the Simpson- Bowles Commission on Fiscal Responsibility that looked out forward said, you got to get $4 to $4.5 trillion of deficit cutting to stabilize the debt-to-GDP ratio of the U.S.

Now, David is saying he thinks it needs to be well more than that because he believes that economic growth is going to be much worse than what the CBO or others have predicted.

But if you take Simpson-Bowles that you've need $4.5 trillion, we've done half of that already and this, if you passed it, would go more than what was in Simpson-Bowles so I think it's at least a perfectly good starting point.

ZAKARIA: David, what do you say to people who argue that you've been crying wolf for a long time and the -- you know, the wolves haven't come.

The bond markets continue to lend us money at the cheapest rates in history. There's no, you know, crisis on hand and hasn't been one. Interest rates have gone down not up.

As -- if somebody was trying to make money off your writings in the last five years, is it fair to say they would have lost money? STOCKMAN: Well, it's not over until it's over. I mean the bond vigilantes have not gone home. They're laughing all the way to the bank.

What you have out there is all kinds of traders who couldn't be more grateful to Bernanke. Everything is managed by the Fed and these deficits, therefore, roll forward because Bernanke is enabling Congress to sit on its hands.

He's enabling the second term president, who should lead in 2013, the first year of his new term, to tell the people you're going to pay more taxes, all of you, not just the 2 percent, to tell the affluent retirees we can't afford to keep paying you and to tell the military industrial complex the pinprick of the sequester is nothing compared to the $100 or $200 billion that needs to be cut.

I disagree with the idea that, you know, we're in the fifth, sixth and seventh year of this recovery, that's the next three budgets allegedly, and we're still stimulating the economy, we're still going to borrow $1.6 billion.

Obama's going to increase spending over the next ten years for discretionary programs. None of that makes sense and is part of the Keynesian delusion, I think, that has settled in like a fog over our policy process.

ZAKARIA: Austan Goolsbee, a final last talk where you defend John Maynard Keynes.

GOOLSBEE: Look, I never met him. I don't know him. But I will say aren't in a Keynesian expansion moment. In the short-run, the deficit and government spending are dropping at a faster rate last year than at any time since the demobilization of World War II.

So the fiscal problem facing the country is fundamentally not about should be even more aggressive in 2013 in trying to get the deficit down. It's about thinking of these longer run factors.

And I fear that that's being missed in this fight about, you know, the debt ceiling and stuff that's in the short-run.

ZAKARIA: Austan Goolsbee, David Stockman, we will come back to you because this debate's not going to go away with this budget. Thank you both very much.

Up next, we look at the biggest driver of debt and deficits, health care, how to cut those costs. We have a great debate when we come back.

(COMMERCIAL BREAK)

ZAKARIA: American's have to file their taxes by tomorrow and around $.20 of every dollar, we will pay to the government will go towards health care, a rather astounding figure, the highest in the world by far.

And health care is the biggest driver of America's debt and deficits going forward. So what to do about it?

We have a terrific debate between two great American businessmen who have done deep investigations into the issue. Steven Brill, the founder of Court TV and the American Lawyer Magazine, decided to follow the money in medicine. The result was the recent Time Magazine cover story, "The Bitter Pill: Why Medical Bills are Killing Us."

David Goldhill is the CEO of the Game Show Network. His father died from a hospital infection and he wrote a book about it, "Catastrophic Care: How American Health Care Killed my Father and How We Can Fix It"

(BEGIN VIDEO)

ZAKARIA: And we are joined by David Goldhill and Steven Brill.

David, your basic argument is that health care does not function the way most markets function, right?

DAVID GOLDHILL, CEO, THE GAME SHOW NETWORK/AUTHOR: Well, we haven't taken advantage of the things that most markets bring to most industries.

We haven't taken advantage of competition. We haven't taken advantage of empowered consumers. We haven't taken advantage of differentiation in services and quality. All the things that drive positive things in other industries, we've stripped out of health care.

ZAKARIA: But -- and give an example. You use LASIK care as an example of how a procedure -- sort of medical procedure not covered by insurance works in a more marketized situation.

GOLDHILL: Well, if we look at any of the parts of health care that are outside of the insurance system, so that's LASIK and other eye care, dental care, cosmetic surgery, what we find is it's very price competitive.

It's also very quality and safety competitive where you actually see people competing against each other on quality, on safety. We don't have that in health -- in mainstream health care because we've got the wrong customer.

We've got big insurers or Medicare. The theory is they're big and powerful enough to drive quality, price and safety, but we've now got 50 years of history that proves they're ineffective in doing so.

ZAKARIA: Steven, when you looked at it very careful, going and looking at the actual bills that were sent, in a sense, you came to the same conclusion, it doesn't function as a normal market.

STEVEN BRILL, FOUNDER, COURT TV AND THE AMERICAN LAWYER MAGAZINE: Well, yes, it doesn't function as a normal market, but I disagree completely with your analysis.

It doesn't function as a normal market because the kinds of medical procedures that you describe are voluntary procedures. You volunteer to have LASIK surgery. You certainly volunteer to have a facelift.

You don't wake up in the morning and say, gee, I think I'm going to, you know, have a heart attack today, I ought to go shop around and see which emergency room is going to be the best for me, what their prices are and what their quality is.

ZAKARIA: You give an example -- a bunch of examples, the most striking one is the one that made the cover of Time Magazine. Tell the price difference here.

BRILL: Well, that's the price of a Tylenol pill at the MD Anderson Cancer Center and the patient was charged $1.50 for that, which doesn't sound like much, except that you can by 100 of them, you know, at a drug store for $1.50.

And what that is emblematic of is not just the $1.50, but the $13,000 that that same patient got charged for a dose of a cancer drug, a life-saving dose, which cost the hospital $4,000, cost the drug maker maybe $200 or $300.

And that's not a marketplace because that patient has no choice, was told you need that drug or you're going to die and had to buy it, as it happened had no insurance and had to pay the full price, and, in fact, was stopped from getting the dose until his check cleared.

ZAKARIA: And what would you do? How would you change it?

GOLDHILL: Well, what I'm seeking is a balance, right? What we've done is all the way in this direction, in fact, further than almost any country on Earth, believe it or not, in reducing the amount of skin consumers have in the game.

But the problem isn't just money. The problem is the way the health care sectors compete now, and I agree with Steve completely, we have a non-functioning price system in health care, prices are not cost., they never have been, their prices may make no sense by any normal economic means, is to remove the consumer from the equation.

Consumers don't exercise power through leverage. They don't have leverage in any market. You don't have leverage in the cell phone market or the personal computer market or the home building market. We never have leverage.

That's things that people say in health care they don't say in anything else. It's the competition for consumers that drives good behavior. And in health care, everything we've done has been to reduce competition.

ZAKARIA: So how could, I mean this seems like a point of agreement, where you talk ...

BRILL: Sure.

ZAKARIA: So much about local monopolies, about the lack of competition, that the reason you can have this kind of price-gouging, which you describe, is because you have all these local monopolies.

BRILL: That's right and the first part of the solution is complete transparency as to pricing so that -- you know, if I'm wrong and you have an instance where consumers have a choice, they have some kind of an informed choice.

But if I'm right and you need insurance and they don't need to have 100 percent of the skin in the game, you need to balance the market out so that those -- you know, the insurers or whoever else is buying on behalf of the patient has, you know, some degree of leverage.

And I do think it is leverage. I think if I walk out of this building today and decide I'm going to buy a new cell phone, the leverage I have is at least knowing, a) that if it's way too expensive for all cell phones, I don't have to buy one, I will live another day, maybe not actually.

And b) there are lots of people who will sell me different kinds of cell phones at a different price. I think that that is power and that is leverage and that is completely missing from the health care economy today.

ZAKARIA: SO I think the one point of agreement is we, in the United States, have a kind of almost the worst of all worlds.

BRILL: Yes, we've tried this really ridiculous experiment where we've left it, you know, completely to market forces, except that what's usual in a market is that there are two sides of the equation, the buyer and the seller.

Here, the market forces only work for the seller. And the result is, we've lived in sort of an alternate universe over the last 10 years, where, you know, the rest of the country, the economy hasn't been so good, in case you haven't noticed, for the last half decade.

But the health care economy is just a totally different planet. Everybody is making more and more money. You know, the salaries are ridiculously high. The profit margins keep going up. T he salaries of the people who run the drug companies and the hospitals keep going up. And it's all at the expense of the rest of us.

ZAKARIA: Final word?

GOLDHILL: Our heart may be in the right place, but we're not just hurting ourselves and our pocketbook. We're genuinely hurting our health. We've unleashed a flood of flood of excess care that is dangerous and unsafe. All health care is not alike, but we treat it all like it's alike. ZAKARIA: All right. We got to leave it at that. This is the big debate in America and I think we have to have it and we have to get it right. Thank you both. GOLDHILL: Thank you. BRILL: Thank you. (END VIDEO) ZAKARIA: Up next What in the World. An American divide more than left or right, Democrat or Republican. What is it? I'll tell you when we come back.

(COMMERCIAL BREAK)

ZAKARIA: Now, for our What in the World segment.

As the support court ponders the legality of gay marriage in the United States, everyone is talking about the political divide where twice as many Democrats support gay marriage as Republicans.

The more influential divide is actually not a simple or right. It's age. Look at this chart from the Pew Research Center. Of Americans born in the 1930s and 40s, known as the "silent generation," only 31 percent favor same-sex marriage.

But amongst baby-boomers, the number rises to 38 percent. It gets still higher for the middle-aged General X at about 49 percent. Now, look at the millennials, those born in 1981 or later, 70 percent support gay marriage. Some other polls put that number even higher rising to 80 percent.

Millennials are an important constituency representing about a fifth of this country's voting age population. Obviously, they're going to be around longer than anyone else so you want to have them on your side.

Their voting patterns are actually striking. If you break down voters' party choices by those age groups, here's what you find: The oldest generation breaks Republican 48 to 44 percent. The baby boomers break Democratic by about the same margin.

The generation after that, Generation X, is slightly Democratic by 47 to 45 percent. The millennials, however, are off the charts. They are Democratic by 62 to 30 percent in 2008 and 55 to 36 percent in 2012. This is a stunning gap.

Now, some explain this by citing a common myth, when you're young, you're liberal. The older you get, the more conservative you become. But it turns out the most important factor is not just your age, but when you came of age.

Look at the data, again from the Pew Research Center, Americans who turned 18 during the Obama or George W. Bush years have overwhelming supported Democrats in every presidential election they voted in.

The same goes for those who came of age during the Clinton years. They're Democrats. But that doesn't mean that young Americans have always skewed left.

Look back at the Republican-led years of Reagan and George H.W. Bush and the numbers look very different. Americans who came of age then have skewed Republican in the polls ever since. The same goes for the Ford and Carter years. So what can we infer about the present?

(BEGIN VIDEO CLIP)

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: A new generation is saying it's our time.

(END VIDEO CLIP)

ZAKARIA: For now, Democrats have a lock on the young demographic. The party has been more progressive on many of the issues dear to young Americans; immigration, gay marriage, gun control.

On the other hand, these are historically bad times for the economy. If you're graduating from high school or college, a depressed job market looms in front of you.

If economics trumps politics, the millennials could switch. That is more plausible than it might initially sound. Of the ten states with the lowest unemployment, seven went Republican in the last election. Of the ten states with the largest population growth, again, seven went Republican. Republicans seem to be winning in states that are growing, where there are jobs and where the governors seem competent and pragmatic. Good governance, it turns out, is also very good politics.

Up next, globalization and food.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: Every time (inaudible) crispy little bird, I'm all over it.

CANDY CROWLEY, CNN ANCHOR: I'm Candy Crowley in Washington with a check of the headlines. North Korea has yet to launch a missile, but it's sticking with its hard-line rhetoric. Last hour on State of the Union Senator John McCain said the communist nation poses a serious military threat and China is the key to easing tensions along the Korean Peninsula.

In Japan today, Secretary of State John Kerry urged North Korea to pursue a peaceful end to the crisis.

China is reporting two new cases of humans with bird flu. The country now has 51 people infected with the virus. A new strain of bird flu was discovered last month. The World Health Organization says there is no evidence of human-to-human transmission. So far 11 people have died. L.A. Lakers star Kobe Bryant suffered a season-ending and possibly career ending injury. The star guard tore his Achilles tender during a game on Friday. The injury will sideline him for the rest of the season and into the next, which Bryant has previously said would be his last. He underwent successful surgery Saturday, but his injury is expected to take six to nine months to heal.

Those are your top stories, "Reliable Sources" is at the top of the hour, now back to Fareed Zakaria "GPS."

ZAKARIA: One of the recurring themes on this show is, of course, globalization. And its effect on everything from economics to employment to innovation, but it also has an extraordinary effect on cultural things like music and theater and food. 50 years ago in New York you could get good French and Italian cuisine, maybe, but that was about it. Today walk around the corner and you're going to find Afghan cuisine, Druze food, Iranian, Burmese, Ethiopian, Peruvian, Szechuan, Hunan, Cantonese, all great stuff and that's just to name a few. And New York isn't unique any more. Who better to talk about the globalization of food than the food world's global citizen, Anthony Bourdain. Bourdain's new CNN show "Parts Unknown" premieres 9:00 P.M. Tonight here on CNN in North America and next Saturday for viewers internationally.

So, are you struck when you travel around the world that there is now a kind of almost international cuisine that if you go to, you know, Shanghai or a smaller (inaudible) in China you know, you'll be able to get pasta primavera and - I mean there is this kind of globalization, you know, that has taken a layer of what we want to call it international food that you can get anywhere.

ANTHONY BOURDAIN, HOST, CNN'S "PARTS UNKNOWN": It's fascinating to see what western food items and dishes become particularly valued in places like China or Japan where, for some reason, French pastries are an obsession, a boutique obsession. So, it's interesting to see on one hand what's traveling abroad while the cutting edge sort of hipster dining public in America are chasing after traditional -- the most authentic Szechuan food or sort of mish (ph) Afghan would be the, would be the hippest and coolest thing you could brag about eating.

ZAKARIA: So, when you go to places like China or India, you know, they're - what they're trying to strive for is the kind of, you know, they're signaling modernity, we are modern, we are part of this world, we have the big breakfast buffet, too.

BOURDAIN: Yes.

ZAKARIA: We have the, you know, we have all the smoked salmon platter and here we're trying to find something more authentic, more ...

BOURDAIN: Yeah, and, of course, authentic is an increasingly meaningless word. You know, with - is classic Italian American, the red sauce, spaghetti and meatballs, is that authentic? No. Not really. But does it matter? It is now. It is a genre all its own and much beloved. It's interesting how the world is changing and how difficult it is to find that sort of old school stuff, which is always what we're looking for on the show. It's often undervalued by the people who created it.

ZAKARIA: How important is China going to be? Because people often say Chinese cuisine is the rival in its complexity and scale and variety of French food and, as China rises and becomes more and more popular, will we see, I mean, will there be an explosion of Chinese food and will that change the way we eat normally?

BOURDAIN: It's the mother cuisine. If you look, I said it jokingly, but I believe it, if you look deep in the heart of any great cook, French, Italian, Spanish, anywhere, there's a Chinese cook in there somewhere. The principles of how to transform something, maybe tough and not so fresh into something delicious. These are Chinese principles. Every case, the cooking method, general principles of great cooking, whatever culture, the Chinese did it first. I think it's the mother cuisine of all other cuisines and certainly, Genghis Khan, you know, may not have been the nicest guy in the world, but brought enlightenment and culture to the West and much like, Genghis, I think the future is very much Chinese when you talk about food.

ZAKARIA: Do you think when you go to these places you can learn larger lessons?

BOURDAIN: Things happen. When you express a willingness to sit down at the table with people from another culture and you express the willingness to do something as simple as eat and drink what gives them pleasure and what they're proud of. Other things, other issues, other subjects reveal themselves. And that willingness to eat what's offered, to drink what's offered in whatever quantity it is offered, I think opens up a communication that in a very privileged way. I mean I think because I'm really there just to eat and drink and find out about very ordinary daily things, I'm - I'm often fortunate enough to find out many other aspects of a society. Of a life of a country, of a culture that I would probably miss if I was coming at it from another direction. I'm not there with an agenda in search of a story.

ZAKARIA: Since you raised the drinking issue, how do you - how can you conceivably drink as much as you seem to drink on that show?

(LAUGHTER)

ZAKARIA: And do you have a hangover remedy?

BOURDAIN: Increasingly, I just pay the price. I don't drink much off camera. I mean what - I'm a professional. I - if I'm in Russia, I understand ...

ZAKARIA: With the (inaudible) for vodka, (inaudible), I knew that.

BOURDAIN: In Russia, I know I'm going to be, you know, knocking off a half a bottle a day. It's why I wait a few years in between Russia shows ...

(LAUGHTER) BOURDAIN: ... because it's not something I could do on a regular basis. But I think if you're going to make friends, particularly when you're trying to show people behaving naturally and comfortably, it's part of the process. My whole crew, we spent a lot of time before, we'll spend as much as four hours with the family drinking and eating.

ZAKARIA: You do. Do you have drink two glasses of milk before you do all this?

BOURDAIN: We're not alcoholics, we're television professionals.

(LAUGHTER)

ZAKARIA: Worst food in the world?

BOURDAIN: Worst national cuisine? Or the single item of food, it's got to be that, it's called Hakarl, it's an Icelandic holiday dish celebrating their tough Viking origins and it's essentially a putrefied, fermented and pickled shark and it is, if I were to have even the tiniest little piece on a plate here, everyone in the studio would be running out the door in mad panic. It is vile beyond words.

ZAKARIA: But you're not much of the fan of the chicken McNugget either.

BOURDAIN: Yes, I'm not a big chicken McNugget fan, I - this yet to be proved to me that it is either chicken or a nugget.

ZAKARIA: On that note, Anthony Bourdain, pleasure to have you on.

BOURDAIN: Thank you.

ZAKARIA: Up next, ethics in business. Does it exist? I'll talk to a man who says it can and does even in the developing world.

(COMMERCIAL BREAK)

ZAKARIA: Many of the world's developing economies are growing rapidly, but many of them are also quite corrupt. Take India, for example. It may be the world's eighth biggest economy, but it ranks 94th in the world on Transparency International's corruption index. Even within a country like that, however, there are some shining examples to the contrary. From which American businesses could learn much about ethics, social responsibility and the style of corporate governance. When I was last in Mumbai, I had a fascinating conversation with Ratan Tata, who recently ran the Tata Group.

The Tata Group is India's largest conglomerate. Its businesses span everything from steel to automobiles to mobiles. It also owns the Taj group of hotels, for which I should point out, my mother works. We met at the famous presidential suite of Mumbai's Taj Mahal hotel. Listen in.

(BEGIN VIDEOTAPE) ZAKARIA: The Tata companies have been a famous for having operated even in the old India, in which there were many, many licenses, permits that had to be gotten from the government and for which people had to pay bribes and the Tatas were famous for not participating in those kinds of ventures. Was that difficult to do?

RATAN TATA, FORMER CHAIRMAN, TATA GROUP: I would say that there have been times when our own people have come to me and said, you know, you're hurting the growth of the group and not agreeing to this or standing in the way we could grow much faster. And my view has been that I really want to go home at night and say I didn't succumb. And let's hold to that because it's, it differentiates us from many others and once you cross that line and it's a slender thread. It's not a gray area. You just cross that line and you're on the other side. And making that crucial step over that tread is, in fact, the most critical issue. Once you've done it, you're just like the others.

ZAKARIA: Your concern about the standing of the group extends so far that you've said you won't do a hostile takeover. Tatas have acquired lots of companies, multi-billion dollar acquisitions. But you say you're never going to launch a hostile takeover?

TATA: Yes, I've said that. And what I mean is that if a company doesn't want us, we're not going to take it by force. What we do before we acquire a company, is spend a lot of time looking at the human chemistry and the management and the work ethics and the manner of working of that company. If there's a chemistry problem or a business policy deviation from us, we have walked away from companies, which would be good business fits for us, but its method of operation would be too alien. So we have stayed away from it.

ZAKARIA: When you make these determinations and, as you say, as this part of the culture at Tatas that you don't - you won't give bribes, or often you weren't asked. But was it difficult to institute that among all your managers, all your chief executives because there must have been ambitious ones who wanted to get ahead at any costs?

TATA: Yes. And we have 458,000 employees and I am quite open in the statement that I can't guarantee the integrity of every one of them. What we do when somebody breaks that code, how we deal with that person, I think, is the true index of what we will do and when we have had a major rogue officer or director, we actually prosecuted that person and the person has actually gone to jail. So, I think we have walked the talk in terms of what we have advocated. We have practiced what we have preached, as a matter of fact.

ZAKARIA: The Tata Sons, the holding company that governs the entire Tata Group is two-thirds owned by charitable trusts. Am I right?

TATA: Yes.

ZAKARIA: ... which means that two-thirds of the income that comes from this enormous industrial and services empire goes to charity. TATA: Yes.

ZAKARIA: Does that change the way in which, you know, does that change your perspective on how and why you're running it?

TATA: Yes, it does. First of all, you know, it runs counter to the general perception that Tatas are a family company and that the proceeds of these industrial operations go to the Tata family. It does not. The family owns about two percent collectively of Tata Sons. And the 65 percent that goes to charity has always been seen as, as a noble usage of the wealth we have created from our companies and it goes back into education, medical, alleviation of power or rural development. So, in a manner of speaking it has always been our driving force that what we are doing is really for plowing it back to the people of India.

ZAKARIA: Ratan Tata, thank you very much.

TATA: Thank you very much.

ZAKARIA: Up next, hitting the high notes.

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UNIDENTIFIED FEMALE (singing)

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ZAKARIA: About the economic debate of our times. I'll explain.

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ZAKARIA: The funeral for the Iron Lady, Margaret Thatcher will be held on Wednesday at St. Paul's Cathedral in London. That brings me to my question this week from the "GPS Challenge." What was Margaret Thatcher's first career out of college? Hint, it wasn't politics. Was she, A, a homemaker, B, a lawyer, C, a grocer or D, a chemist. Stay tuned and we'll tell you the correct answer. Go to CNN.com/fareed for more of the "GPS Challenge" and lots of inside and analysis. You can also follow us on Twitter and Facebook. Also, remember, you can go to itunes.com/fareed if you ever miss a show or a special.

This week's Book of the Week is superb. "The Sleepwalkers: How Europe Went to War in 1914" by Christopher Clarke. One of the great mysteries of history is how Europe's great powers could have stumbled into World War I. A war that destroyed Europe in many ways. It killed three great European empires, paved the road for communism and fascism, led directly to World War II. This is the single best book I have read on this important topic.

And now, for the last look. Discord. Conflict. Feud. The ingredients of a great drama, right? Well, they were all hooked up into an operatic work that premiered in Tallinn, Estonia this week. But this is not the Montague versus the Capuletti, it is not Jean Valjean versus Inspector Javert .. (BEGIN VIDEO CLIP)

UNIDENTIFIED MALE (singing): Do not forget my name! Do not forget me!

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ZAKARIA: This was the true story of Paul Krugman, the Nobel prize winning economist versus President Toomas Hendrik Ilves of Estonia. You might recall their spat, which erupted online about a year ago about spending versus saving, stimulus versus austerity. On his blog, Krugman called Estonia the poster child for austerity and it wasn't meant as a compliment. Ilves responded on Twitter, using an un-presidential expletive and called Krugman's words "smug, overbearing and patronizing." Operatic, indeed. We have a link to the full video and text of the opera on the GPS blog.

The correct answer to our "GPS Challenge" question was D. Margaret Thatcher graduated from Oxford with a degree in chemistry and went on to work in the field for a few years.

Thanks to all of you for being part of my program this week. I will see you next week. Stay tuned for "Reliable Sources."